Have a $31.00 target. GLTA
CENOVUS ENERGY INC
First Look: Q2/23 Results In Line With Expectations
Cenovus reported Q2/23 results that were in line with our expectations and
consensus. Variances to our estimates stemmed primarily from lower
realizations and margins from offshore, partially offset by stronger
realizations from the oil sands business. We expect investor focus will be on
clarity around the timing of Superior’s fluid catalytic cracking unit (FCCU)
restart (and ramp-up), the modest lowering of full-year production guidance,
and several key leadership changes. We believe the changes to full-year
guidance and the delayed ramp-up timing of Superior’s refinery were
relatively understood going into Q2 earnings.
Financial And Operating Takeaways
• Q2/23 results: Production of ~730 MBoe/d was in line with our estimate
of ~725 MBoe/d and consensus of ~730 MBoe/d (range of 723 MBoe/d
to 742 MBoe/d). Adjusted FFO per share (diluted) of $0.98 was in line
with our estimate of $1.01 and consensus of $1.00 (range of $0.93 to
$1.03). Capex of $1.0 billion was in line with our estimate of $1.05 billion
and consensus of $1.1 billion (range of $1.00 billion to $1.18 billion).
• Leadership update: The company announced numerous changes to its
executive team. Most notably, Keith Chiasson (EVP Downstream) will
assume the role of Chief Operating Officer and Kam Sandhar (EVP,
Strategy & Corporate Development) will assume the role of EVP & Chief
Financial Officer along with continuing to be responsible for investor
relations.
• Revised 2023 corporate guidance: The company provided updated
production guidance of 775 MBoe/d-795 MBoe/d (from 790 MBoe/d-
810 MBoe/d), including a reduction of 10 MBoe/d in conventional to
115 MBoe/d-130 MBoe/d, reflecting impacts from the Alberta wildfires,
and a 5 MBbl/d impact at Lloydminster thermal to reflect YTD operational
performance. Capital investment was unchanged at $4.0 billion-
$4.5 billion.
• Shareholder returns: The company delivered $575 million to
shareholders through the purchase of 14 million shares ($310 million)
and common share dividends. Further, Cenovus has reached an
agreement to purchase ~45 million warrants for a total of $711 million
until the end of the year. The company exited the quarter with
~$6.4 billion in net debt.
• Valuation: Cenovus trades at a P/RNAV ratio of 98%, a 2024E
EV/DACF of 5.0x and a 2024E FCF yield of 12% vs. the large-cap group
at 99%, 5.0x and 13%, respectively